Chapter 7 vs. Chapter 13: Which Chapter Should You File?

Prior to getting into a discussion on whether one might select Chapter 7 or Chapter 13, following is a brief description of each chapter:

Chapter 7
Chapter 7 is commonly known as “liquidation” or “total bankruptcy.” A Chapter 7 may be filed by most types of entities, including an individual, a married couple, an LLC, or a corporation. A married person may either file alone or with their spouse, at their discretion. See 11 U.S.C. § 109(b) for more details on who may be a Chapter 7 debtor.In a Chapter 7 bankruptcy case, the debtor is allowed to retain all of the property that he or she owns that is “exempt.” That is, each State determines how much real estate, personal property, and other types of property one may retain in a bankruptcy proceeding which is filed in that State (though a debtor has to live in a State for at least 2 years to be able to use that State’s exemptions read more about the 2-year residency requirement to use exemptions in 11 U.S.C. § 522(b)(3)(A)). To clarify, you only have to live in a State for 91 days to file bankruptcy in that State (see 28 U.S.C. § 1408), but you have to live in a State at least 2 years if you want to use that State’s exemption scheme. Otherwise, you may be using your prior State’s exemptions, or possibly even the federal exemptions (ask your attorney). Any property the debtor owns which is in excess of the values the State declares to be exempt is sold by the Chapter 7 bankruptcy trustee and the proceeds of the sale are given to the creditors unless the Chapter 7 debtor can negotiate with the trustee to pay the trustee an amount sufficient to settle the trustee's claim and let the debtor retain the un-exempt assets. In Indiana there are several exemptions which are too numerous and too complicated to discuss in detail here, but many (but by no means all) of the exemptions available to Indiana residents are codified in Indiana Code § 34-55-10-2. It should be noted that the amounts that may be exempted as written in the Indiana Code are not correct these amounts are updated periodically, and the updated amounts are found in 750 I.A.C. 1-1-1. So, for example, the Indiana Code indicates that one may exempt $15,000 of equity in one’s residence pursuant to IC § 34-55-10-2(c)(1), whereas 750 I.A.C. 1-1-1 updates the allowed exemption to $22,750. Two of the more commonly used exemptions are the “residential real estate exemption” (IC § 34-55-10-2(c)(1)) and the “personal property exemption” (IC § 34-55-10-2(c)(2)). According to these exemptions, a person filing bankruptcy in Indiana may retain up to $22,750 equity in real estate or property (such as a mobile home) in which the debtor or a dependent of the debtor resides, and may retain up to $12,100 of personal property or real estate which is not used as their residence. Married couples are each individually entitled to these exemption amounts, so a married couple filing bankruptcy jointly can actually protect up to $45,500 equity in their residence and $24,200 in personal property. Another common exemption is the intangible exemption (IC § 34-55-10-2(c)(3)) which basically means cash or items easily converted to cash (like corporate stock, bank accounts, money owed to the debtor, tax refund checks, etc). This allows each debtor to exempt up to $450 of “cash,” which isn’t much, so you do not normally file Chapter 7 on a day when your bank account balances are high (such as right after getting your paycheck direct-deposited). This doesn’t mean you should stop your direct deposit if you plan on filing bankruptcy, but it does mean you need to time the filing of the bankruptcy on a day when your bank balances are lower rather than higher (i.e. after you have paid bills). Ask you attorney about this since exemption-planning can be very complicated. Finally, there are a host of other exemptions. Retirement accounts are usually completely safe, as are funds in a Health Savings Account. Social Security founds are also usually safe. Be sure you disclose all your property to your attorney so he or she can assist you in exemption-planning to protect your assets. These same exemptions apply in both Chapter 7 and Chapter 13 cases, but what happens in the event your property is worth more than you are allowed to exempt is handled very differently in Chapter 7 than Chapter 13 (i.e. in Chapter 7 the un-exempt assets are sold and the money is given to creditors, hence Chapter 7 is the “liquidation” bankruptcy and is over relatively quickly, whereas in Chapter 13, debtors can often keep their un-exempt assets by paying enough money in to their Chapter 13 Plan over 3 to 5 years to protect those un-exempt assets, hence Chapter 13 is the “reorganization” bankruptcy, but takes 3 to 5 years to complete since you have to pay in enough money to protect un-exempt assets). More on that below. Debts which are generally dischargeable by a Chapter 7 include medical bills, credit cards, utility bills, personal loans, signature loans, mortgages (if the real estate is surrendered), car loans (if the car is surrendered), deficiency balances due after the sale of a repossessed vehicle, and most other types of consumer debt even if those debts have become a judgment from a lawsuit (i.e. even if someone sues you and gets a judgment against you, you can still usually discharge the judgment in bankruptcy, but if you own real estate, the lawsuit may cause a judgment lien to attach to your real estate which you can usually get rid of in bankruptcy, but not always - ask your attorney). Debts which are not generally dischargeable by a Chapter 7 case include income taxes that are less than three years old, trust fund taxes no matter how old they are (such as employee withholding taxes which, as an employer, you owe from your employees’ wages), student loans (unless the debtor can show that repayment of the student loans will cause an undue hardship on the debtor or a dependent of the debtor), debts obtained by fraud, debts incurred from accidents involving alcohol or drugs, debts incurred from willful or malicious behavior, child support, alimony, property settlement debts owed to a spouse or former spouse in connection with a divorce decree, criminal restitution, and certain other specifically-defined types of debt (and many, but not all of which, are identified in 11 U.S.C. § 523). When one files a Chapter 7, all of his or her dischargeable debts are canceled, and then the debtor decides if there are any debts that he or she would like to retain. Debts are retained in a Chapter 7 by the debtor signing a “reaffirmation agreement,” which is an agreement that says the debtor has voluntarily waived his or her right to discharge the particular debt in return for some compensation, which is normally the right to continue to have possession of some piece of collateral associated with the reaffirmed debt. For example, when one files Chapter 7, his or her mortgage is discharged, but if the debtor wants to retain the home, he or she simply signs a reaffirmation agreement indicating that he or she will retain the debt and keep making the mortgage payments in return for the bank letting him or her keep their home. It is common for debtors to reaffirm debts for car loans and homes in order to retain those items. Reaffirmation agreements are discussed in detail in 11 U.S.C. § 524(c). There are at least two things to know when reaffirming debts: One, banks normally require that the debtor be current on the loan in order to reaffirm the debt, so if one files Chapter 7 and is behind on his or her mortgage payments, he or she may not be able to keep the home unless he or she can get the loan current within a very short time. Two, reaffirmation agreements are binding unless they are withdrawn by the debtor within 60 days of the date on which the agreement is filed with the court, or prior to the Order of Discharge being issued, whichever occurs later. So, once the deadline to withdraw the reaffirmation expires the debtor is locked into the reaffirmed debt, and if the debtor later discovers that he or she cannot afford to repay the loan, the bankruptcy filing will provide no protection to the debtor if the bank sues the debtor and/or repossesses the collateral. Therefore, one should never reaffirm a debt, even for a house or car, unless one is absolutely certain he or she will be able to afford all of the payments on the reaffirmed loan. Another option for a debtor to retain collateral in Chapter 7 is by redeeming collateral pursuant to 11 U.S.C. § 722. If the debtor owes more on the collateral than it is worth, the debtor can file a Motion to Redeem and ask the Court to order the creditor to accept the full value of the collateral and discharge the balance, though the full value must be paid in a lump sum, usually within 30 days from when the Court grants the Motion. For example, if a Chapter 7 debtor owes $15,000 on a car worth $10,000, the debtor may request the Court to order the creditor to accept $10,000 for the car, and the remaining $5,000 will get discharged. But, if the Court grants the Motion, the debtor has to pay the creditor the $10,000 usually within 30 days. Many debtors accomplish this by pulling money from a retirement account after the case is filed and after discussing doing so with their attorney, or by obtaining a new loan for the redemption amount. A company that frequently makes redemption loans for debtors in bankruptcy is 722 Redemption Funding. Through redemption, a debtor may save thousands of dollars on a loan. The typical Chapter 7 case takes three to four months to complete, with the debtor being required to attend only one brief Zoom hearing in most cases. At the hearing, the bankruptcy trustee, or the debtor’s attorney in some jurisdictions, will ask the debtor a series of questions in order to determine if there are any issues in the bankruptcy case. If there are no issues, the debtor will receive an Order of Discharge from the court in the mail around 60 to 70 days after the date of the hearing, at which time the case is complete and the dischargeable debts are canceled. After the bankruptcy case is complete, the debtor is responsible to pay only those debts which were not discharged by the Chapter 7 (such as child support and taxes that are less than three years old, etc) and any debts that the debtor voluntarily reaffirmed (such as car loans and mortgages). Chapter 7 is on one’s credit report for ten years, but most debtor’s credit scores go up quite a bit within 12 months from where the score was before the bankruptcy was filed.

Chapter 13
Chapter 13 is commonly referred to as a “wage earner plan” or “reorganization.” A Chapter 13 may be filed by an individual or a married couple only, and may not be filed by any other type of entity (such as a corporation, LLC, partnership, etc.). Married persons may either file alone or with their spouse, at their discretion. See 11 U.S.C. § 109(e) for more details on who may be a Chapter 13 debtor. In a Chapter 13 case, the debtor pays back a portion of their debt over three to five years, based on what the debtor can afford to pay. The debtor does this by first proposing a “Chapter 13 Plan” to the court, which indicates the amount the debtor will pay each month and for how long. This money is paid to the Chapter 13 bankruptcy trustee assigned to the debtor’s case, and the bankruptcy trustee disburses the money to all of the creditors according to the Chapter 13 Plan. Generally, all of the debtor’s debts, including medical bills, credit cards, car loans, taxes, and virtually every other type of debt, are lumped together into the Chapter 13 Plan, so that the debtor will only have one payment per month for all of their debt: the Chapter 13 Plan payment. The only common exception to this are mortgages or other long term debts (i.e. debts which take longer than the length of the Chapter 13 Plan to pay back) which, if they are current, continue to be paid directly by the debtor to the lender. Other types of long-term debt that are sometimes left out of the Chapter 13 Plan include student loans, child support, etc. But, if mortgage payments are behind when the bankruptcy case is filed, they too are paid through the Chapter 13 Plan (in Southern Indiana - this varies by jurisdiction). By doing so, debtors can cure mortgage arrears by paying the mortgage through the Chapter 13 Plan, and most other types of debts that are behind can also be cured by treating them appropriately in the Chapter 13 Plan (more on that below). Even though all or most of one’s debts are lumped together into the Chapter 13 Plan payment, the amount of the payment is often considerably less than the sum of all of the individual payments the debtor was making prior to filing the Chapter 13, for several reasons: One, the debtor only has to pay a percentage of the unsecured debt (i.e. "unsecured" meaning creditors which do not have the right to repossess a piece of collateral such as a car or home) depending on what the debtor can afford to repay, and unsecured debts do not get paid any interest in a Chapter 13 Plan. So, if one owes $24,000.00 in medical bills and was paying them at 8% interest prior to filing Chapter 13, in the Chapter 13 Plan he or she would only have to pay a fraction of this amount based on what the debtor could afford, at 0% interest. The remaining unpaid portion of the medical bills are discharged. Two, the debtor in many cases only has to pay the value of collateral (unless the collateral was too recently purchased), not the total amount owed, for most secured debts (i.e. "secured" meaning creditors who have the right to repossess some collateral, such as a car or furniture loan), called a "cram down." This is very similar to redemption in Chapter 7, except you do not need a new loan to pay the value of the collateral to the creditor you pay the creditor through the Chapter 13 Plan. The “cram down” option does not normally apply to mortgages on debtor’s residence, or to car loans if the car loan was obtained within 910 days (about 2 ½ years) before the bankruptcy case was filed. In those cases, the interest rate can be changed in the Chapter 13 Plan (see below), but the full amount of the loan (not just the value) has to be paid back. Three, the debtor only has to pay a reasonable interest rate on the secured items in the Chapter 13 Plan (which the Supreme Court implied might be the prime rate plus a 1% to 3% risk adjustment in Till v. SCS Credit Corp., 541 US 465 (Supreme Court 2004)). So, for example, if one owes $14,000.00 at 18% interest on a vehicle prior to filing chapter 13, and the vehicle is only worth $5,000.00, in a Chapter 13 Plan the debtor may only have to pay the $5,000.00 value at some reduced interest rate (prime rate + 1%) in order to keep the car, and the remaining unpaid balance of $9,000.00 would be discharged. In this way, a Chapter 13 Plan can take formerly high monthly payments and reduce them significantly without the debtor having to lose any property or obtain any new financing. Four, the debtor may be able to "strip" junior mortgages if he or she can show that the amount owed on superior mortgage(s) exceeds the value of the real estate, and files a motion (or an adversary proceeding, which is required in Southern District of Indiana) to that effect. So, for example, if a debtor owes $100,000 on their first mortgage, but their house is only worth $90,000, then they can discharge their second mortgage. But, if they owe $100,000 on their mortgage, but their house is worth $100,001, then the second mortgage survives in its entirety. Five, in Chapter 13, in many cases one may pay non-dischargeable taxes through his or her Chapter 13 Plan without being assessed any further interest or penalties. Chapter 13 Plans can be used to cure most types of debts that are behind. So, if house payments, car payments, rent, utilities, etc., are behind, those debts can usually be caught up through the terms in a Chapter 13 Plan without the debtor losing the home or car, without being evicted, without having the lights shut off, etc. For example, a common use for Chapter 13 is to cure mortgage arrearage. One may also include arrearage due on a mortgage in a Chapter 13 Plan, and the lender is forced to treat the debtor as if he or she is current on the mortgage so long as the debtor does not miss any further mortgage payments or Chapter 13 Plan payments. In this way, debtors may stop foreclosure proceedings on their home and get the missed mortgage payments caught back up within a reasonable budget. The exemptions that apply in a Chapter 7 case also apply in Chapter 13 cases (see Chapter 7, above), but even if a debtor is over the exemption limits in a Chapter 13 case, he or she can still keep all of their unexempt property without fear that the bankruptcy trustee will sell the property if he or she structures the Chapter 13 Plan appropriately (whereas in Chapter 7, the un-exempt property is sold by the trustee). This is normally done by increasing the amount of the Chapter 13 Plan payment until the bankruptcy trustee is satisfied that he or she is receiving enough money through the Chapter 13 Plan that selling the unexempt property is no longer necessary (called the "Best Interest of Creditors" test). Debts which are generally dischargeable by a Chapter 13 include medical bills, credit cards, utility bills, personal loans, signature loans, property settlements from divorce decrees (but not support), mortgages (if the real estate is surrendered), car loans (if the car is surrendered), deficiency balances due after the sale of a repossessed vehicle, and most other types of consumer debt even if those debts have become a judgment from a lawsuit (i.e. even if someone sues you and gets a judgment against you, you can still usually discharge the judgment in bankruptcy, but if you own real estate, the lawsuit may cause a judgment lien to attach to your real estate which you can usually get rid of in bankruptcy, but not always - ask your attorney). Debts which are not generally dischargeable by a Chapter 13 case include income taxes that are less than three years old, trust fund taxes no matter how old they are (such as employee withholding taxes which, as an employer, you owe from your employees’ wages), student loans (unless the debtor can show that repayment of the student loans will cause an undue hardship on the debtor or a dependent of the debtor), debts incurred from accidents involving alcohol or drugs, child support, alimony, criminal restitution, and certain other specifically-defined types of debt (and many, but not all of which, are identified in 11 U.S.C. § 523 and modified by 11 U.S.C. § 1328(a)).Even though some types of debts are not dischargeable by Chapter 13 or any chapter in bankruptcy, those debts can nonetheless often be cured and paid off through the Chapter 13 Plan. The typical Chapter 13 case requires that the debtor appear at only one brief Zoom hearing in most cases, though some courts have two hearings (a "Meeting of Creditors" and a "Confirmation" hearing), though this two-hearing system is not the practice in the Southern District of Indiana. At the Zoom hearing, the bankruptcy trustee will ask the debtor a series of questions to determine if there are any issues in the case. If there are no issues, or after any issues that exist are resolved, the court will normally deliver an “Order of Confirmation” to the debtor in the mail. The Order of Confirmation is the court’s approval of the Chapter 13 Plan. After completing one’s Chapter 13 Plan, the payments of which must last between three and five years, the debtor will normally apply for and receive an Order of Discharge from the court in the mail. Upon receiving the Order of Discharge, the case is complete. After the case is over, the debtor will be responsible to pay only those debts which were not discharged by the Chapter 13 (such as child support) or not paid off through the Chapter 13 Plan (such as mortgages, student loans, or other long-term debts). Chapter 13 is on one’s credit report for seven years, but most debtor’s credit scores go up quite a bit within 12 months from where the score was before the bankruptcy was filed.

Chapter 7 vs. Chapter 13
Once one has decided to file bankruptcy, choosing whether to file Chapter 7 or Chapter 13 is a major consideration. There are certainly more factors and considerations than can be properly covered here, and one should always consult with an attorney to make this decision, but some of the things one should consider are as follows:

MANDATORY DECISION MAKERS
If one's income exceeds the median income for his or her state, that person will in all likelihood have to file Chapter 13. This is called the "means test," and those who have the “means” to fund a Chapter 13 Plan are generally required to do so. You can try to plug your income into an online means test calculator to see if you qualify for Chapter 7. If you make too much money and do not qualify for Chapter 7, you will have to file Chapter 13. However, calculating the Means Test is complicated and affected by a lot of local interpretation, so it is strongly advised that you have an attorney do it for you. The means test provisions are essentially found in 11 U.S.C. § 707(b)(2)(a) and 11 U.S.C. § 1322(d). If one has received a discharge from a prior Chapter 7 or Chapter 11 bankruptcy case that was filed within the last eight years, or received a discharge from a prior Chapter 12 or Chapter 13 that was filed within the last six years, then that person is not eligible to file Chapter 7 according to 11 U.S.C. § 727(a)(8) and (9). So, the only filing option for that person is Chapter 13. If the entity seeking to file bankruptcy is anything other than an actual person (such as a corporation, LLC, or partnership, etc) then Chapter 13 is not an option. Those non-human entities may only file a Chapter 7 or Chapter 11 case (and Chapter 11 is not discussed in any detail in this website). If the person seeking to file bankruptcy owes more than a set limit in non-contingent, liquidated, unsecured debt, or more than a set limit in non-contingent, liquidated, secured debt, that person may not file Chapter 13 by law and therefore must file Chapter 7 according to 11 U.S.C. § 109(e). These debt-cap figures are updated every April. If the person seeking to file bankruptcy does not have a steady source of income from which to pay his or her Chapter 13 Plan payment, that person is not allowed to file a Chapter 13 and therefore may only file a Chapter 7. This ability to fund the Chapter 13 Plan is one of the requirements found in 11 U.S.C. § 1325(a). If one’s regular monthly income exceeds his or her regular monthly expenses by $100.00 or more, that person must usually file a Chapter 13 since $100 is normally deemed sufficient to fund at least a minimal Chapter 13 Plan. In other words, even if the Means Test says a person is okay to file Chapter 7, the debtor still has to show that, after deducting the debtor’s reasonable and necessary expenses from the debtor’s take-home (net) income, that debtor does not have enough money left to afford $100/mo or more in a Chapter 13 Plan.

DISCRETIONARY DECISION INFLUENCES
One important factor to consider is whether or not one is current on the secured loans for collateral he or she wants to keep, or current on rent, utilities, etc. Typically, one must be current on a loan to reaffirm the debt in a Chapter 7, current on rent to not get evicted, and current on utilities to not get them shut off, but whether one is current or behind is usually irrelevant in a Chapter 13 case because a Chapter 13 Plan can be structured to cure the delinquency and force the creditor to treat the debtor as if the debtor is current on the debt. A much less important factor to consider is whether one owes back child support or non-dischargeable taxes described in 11 U.S.C. § 523(a)(1) and (5), since if so, that person may file Chapter 7 but may expose him or herself to a slight risk of having their assets seized and sold to pay the non-dischargeable debt (even their exempt assets) pursuant to 11 U.S.C. § 522(c)(1), though this is pretty unlikely. So, those who owe back child support or non-dischargeable taxes may want file Chapter 13 rather than 7 if they don’t want to take this slight risk. I say “slight risk,” because courts have been rejecting this provision of the Bankruptcy Code as a tool for a debtor’s exempt property to be sold to pay a non-dischargeable debt (see In re Covington, 368 B.R. 38, Bkrptcy Ct E.D. Ca. (2006), In re Cunningham, 513 F.3d 318 (2008), In re Ruppel, 368 BR 42 - Bankr. Court, D. Oregon 2007, etc.). Another consideration is the types of debts owed. Chapter 13 will protect one from some types of debts that Chapter 7 will not, such as a debt owed to a spouse or former spouse pursuant to a divorce decree. Also, keep in mind whether one is within his or her exemption limits on property that person wishes to retain. If the value of one’s personal property, equity in residential real estate, or other property exceeds his or her exemption limit for that type of property, those items will be sold by the bankruptcy trustee in a Chapter 7 case, whereas those same items can be protected by filing Chapter 13 and arranging the terms of the Chapter 13 Plan to pay unsecured creditors as much money as those creditors would have gotten had the property been sold in a Chapter 7 case (called the Best Interest of Creditors Test).Whether one is “upside down” on a loan may also influence the chapter one selects. Being “upside down” or “under water” on a loan means that one owes more on a piece of collateral than that collateral is worth. For example, if one owes $10,000.00 on a car that is only worth $6,000.00, that person is upside down on the loan by $4,000.00. If that person wants to keep the car, and he or she files Chapter 7, he or she will either have to reaffirm the debt for the original contract terms in order to keep the vehicle (and pay a lot more than the car is worth, which is a bad idea), or redeem the car for the fair market value, which often requires a new loan at a usually high interest rate (and high interest rates are generally a bad idea). However, in a Chapter 13 case, one only has to pay the value of the collateral or the amount owed, whichever is less, at a much more reasonable interest rate in the Chapter 13 Plan (as long as the car was not purchased within 910 days of the bankruptcy filing). So, a Chapter 13 debtor could keep the car by only paying $6,000.00 at a fair interest rate, and the other $4,000.00 would be discharged by the Chapter 13. But, if the person can come up with the $6,000 to redeem the car from a source that isn’t at a high interest rate (such as by cashing out a retirement account or borrowing from a rich uncle), then that person may want to file Chapter 7 and save the generally higher fees that a Chapter 13 costs. Also, if the car was purchased within 910 days of the bankruptcy filing date, a debtor in Chapter 7 can still redeem the property, whereas a debtor in Chapter 13 would have to pay the entire amount of the loan, so that person might prefer Chapter 7 (even if that means he or she will pay a high interest rate on the lower amount).There are also a host of other non-legal considerations one must consider to determine which chapter is best to file. For instance, one should weigh the likelihood of there being future medical debt. If the debtor has a medical condition in which he or she continues to incur medical debt, it may be better to file Chapter 13 now and leave the option to convert to Chapter 7 later to discharge post-petition medical debt if it becomes too much for the debtor to pay. If that same debtor were to file Chapter 7 right now, and then incur $20,000 in medical debt over the next year, he or she could not discharge that liability since he or she could not file Chapter 7 again for 8 years from the first Chapter 7, and cannot file a Chapter 13 and receive a discharge for 4 years after the Chapter 7. Other considerations include (but are certainly not limited to): if a debtor is planning on retiring at some point over the next couple of years, Chapter 13 may not be a good option since that person’s ability to make the Chapter 13 Plan payments may stop before the Chapter 13 Plan can be completed. Or, if the debtor is planning on buying a house in the next year or so, it may be tough to get a bank loan when one is in the middle of a Chapter 13 Plan (though not impossible), and one must get approval from the court to even get the loan if the Chapter 13 Plan is still in progress. If the debtor is planning on having children soon, it is important to plan ahead how that will affect the debtor’s income and ability to fund a Chapter 13 Plan. If the debtor is planning to get married to someone who will make their household income exceed the Means Test amount, he or she might want to file a Chapter 7 now, well before the I-Do’s. All of the above mandatory and discretionary factors and others of varying complexity come together to make the decision between Chapter 7 and Chapter 13 a daunting one. One is encouraged to seek the counsel of an attorney in order to get assistance with this important decision, preferably BEFORE getting married if you’re planning on it, BEFORE getting divorced if you’re planning on it, BEFORE liquidating assets or transferring anything from or to your name, etc. In other words, do not do your own exemption planning and try to move assets around without an attorney’s help or you could actually create a problem where one didn’t exist before. For example, I’ve had clients come in to the office and say “My son and I owned a car together, so I signed my name off of my car so it is only in his name now, I hope that’s okay.” I assume this is an attempt to get a valuable asset out of the client’s name before he or she files bankruptcy. Now, we have to disclose the transfer of the client’s half-ownership to his son for no compensation on the bankruptcy schedules (i.e. the Bankruptcy Code makes you disclose transfers for 2 years preceding the date of the bankruptcy filing), which the court might deem a gift, and then the court can go after son and make him pay the court half of the value of the car to give the money to creditors, whereas had the client left the car in both of their names, client’s half-interest would have been perfectly exempt and safe in bankruptcy. Even if the car gets puts back into the client’s name before the bankruptcy is filed, all this transferring of assets looks very suspicious to the court.

So, if you think bankruptcy might be a possibility, seeking the advice of an attorney sooner rather than later is a good idea to help you make the decision of which Chapter and how to plan your exemptions accordingly.